AN ENQUIRY ABOUT THE SECULAR STAGNATION THEORY

Abstract

The thesis is organized in the following manner: five chapters aimed at analysing the so called Secular Stagnation theory are presented. They all have their own conclusions, and at the very end a general assessment of the entire study is provided. The first three chapters are devoted to the study of the neoclassical demand side Secular Stagnation models, while the fourth deals with the heterodox approaches to the issue. These four chapters together constitutes the theoretical part of the thesis. The fifth chapter contains an empirical analysis about one of the aspects of the theory that are going to be emerge from the theoretical discussion. The first chapter introduces the general framework of the neoclassical theory, within which the Secular Stagnation hypothesis is placed. Then, the main research questions are described. The theoretical proposal of Summers is illustrated and a discussion of the critical points we pinpoint in it is provided. The chapter closes with a description of the difference between the demand side and the supply side Secular Stagnation theories. The second chapter goes back to the main inspiration for the intuitions of Summers, which is the 1998 article of Krugman about the Japanese long lasting stagnation. After having presented the model in its economic meaning and formal garment, we discuss the weak points that we have spotted within it, making a connection with the theoretical apparatus of Summers and with our main lines of research. The third chapter deals with the most recent demand side Secular Stagnation model by Eggertsson, Mehrotra and Robbins. We present it in its main features and then we critically review them, posing a particular accent upon some of the novel aspects that they introduce to justify their results, which have not yet been discussed in the critical literature about Secular Stagnation. Again, a connection with our main lines of research and with the previous discussion of the models of Krugman and Summers is spelt out. The fourth chapter highlights the presence in the heterodox literature of some models that can explain economic stagnation without incurring in the issues that we have pointed out with respect to the neoclassical models. We make a distinction between the models that retain some feature from the neoclassical explanation, and the ones that neatly propose a radically different viewpoint, discussing which is our preferred alternative. The fifth chapter hosts an econometric exercise on the empirical literature about the relationship between price variables, in particular the interest rate, and private investment. This allows us to complement the theoretical part, and to analyse an aspect that had not been directly questioned in the previous chapters. In it we describe how the dataset has been built, which econometric technique we have utilized, what are the main results that we have obtained.